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Personal Finance Blog for Millennials

A personal finance blog specifically for Millennials. We scan the Internet for the best money and financial advice articles pertaining to Millennials. We post articles relevant to Millennials – like paying off student loan debt, saving for a house, retirement planning, paying for college, and building wealth.

If you are anything like me, then setting goals is a great motivator to keep you on track. I have been doing this for several years now, both financially and professionally. My company makes me set yearly goals so I’ve adopted that mindset and set goals for my family’s financial future. Here is my list of 8 goals that I think all Millennial’s should have (and eventually celebrate).

1) Create an Emergency Fund (3-6 Months)

I’ll admit this took me forever to finally take seriously and accomplish. It’s really easy to let all other spending and debt repayments get in the way. My wife and I finally accomplished this just before we turned 30 and it felt great. We have approximately 5 months’ worth of living expenses saved. It’s shocking how comfortable you feel, financially, with that amount of money in savings. We both have Roth IRA’s and those are NOT included in our calculations – you shouldn’t include it either.

2) Payoff Student Loans (Before 30)

I accomplished this goal just before my 30th birthday and it felt amazing. Don’t let anyone tell you student loan debt is good debt. It’s not. So many people are drowning in student loan debt and think its okay because eventually their college education will pay for itself. That may be true, but your best path to financial success is paying off your loan as soon as possible and not keeping it around because you get a tax deduction. Pay it off then go out and celebrate. You deserve it.

3) Buy a Home (You Can Afford)

I have been a home owner for over 10 years now. Our first home was a smaller starter home that we lived in for 6 years. Over those 6 years we had enough equity to move up in home and purchase something larger our family could grow into – and possibly live in forever. Honestly, we did over-reach on our 2nd house, but it also forced our hand at budgeting and getting our financial house in order. It ended up being a blessing in disguise and we’re better off for it. Keeping your mortgage payments to 20-25% of your take home pay makes it much more manageable and a whole lots less stressful. If you keep it under 20% you will really be stress-free.

4) Saving $100,000 for Retirement (This is Just the Beginning)

It took my wife and me about 7 years to reach $100,000 (total) in our retirement accounts. I have a 401(k) with company match and she is independent with a Roth IRA. My balance was able to grow significantly faster with the company match. Hitting that 6-figure mark in our account was a great feeling. But it’s only the beginning because we (Millennial’s) need so much more than that to retire. This just reinforced to us that diligent saving and compounding interest really does pay off.

Are you wondering what it would take to reach $100,000? Simple. Just save $400/month for 13 years with an assumed return of 7% and you’ll be at approximately $100,000.

5) Save the Max for Retirement

I am honestly not quite there yet but I should be next year. We have been maxing out my wife’s Roth IRA for a few years now, and I opened a Roth IRA a couple years ago and have maxed it out both years. Now we are trying to rework our budget so I can hit the max in my company 401(k), which is $18,500. We keep pushing ourselves to live on less and every raise goes to the retirement account – not living expenses. We’re getting really good at this! By next year I am very confident that we will be saving nearly $30,000 of our own money (not including company match) for our retirement.

6) Save for College (529 Plans)

I opened a 529 college savings plan just days after my daughter was born. Remember the aforementioned goal #2 (paying off your student loan?). Well, I want to do my best to ensure neither my wife nor I or our daughter have to incur any type of student loan debt. The future cost of college projects to be extremely expensive (as if it’s not already) but we are trying to minimize that burden by saving monthly into our state sponsored 529 plan.

7) Payoff Your Home

This one is going take me a while to hit. It is a lofty goal but one that means a lot to me, and everyone for that matter. Living without a mortgage payment feels like a fantasy to virtually everyone. I want to make that a reality. But here is my struggle, any extra money I have now goes to retirement savings and college savings. We have even opened up a taxable brokerage account with Betterment to help potentially bridge the gap to early retirement. All of my financial energy goes towards those goals at the moment. Honestly, I would prefer to have a pile of cash in 15 years that I can do anything with (retire, work part-time, etc.) then living without a mortgage payment. As it stands now, with no extra principal payments, I will be mortgage free just before I am 50. I am going to see if I can shave off another years though.

8) $1 Million Retirement Portfolio (You and Your Spouse)

This should be every Millennial’s second biggest goal. Reaching $1,000,000 in your retirement account will feel utterly amazing. In actuality, not many people will even achieve this. However, if you are reading this blog then you have obviously taken your finances head-on. And you probably know that a million dollars doesn’t really go that far any longer. It certainly won’t for us Millennial’s once we reach our 50’s and 60’s. A million dollar portfolio will only generate $30,000 to $40,000 annually in retirement. I can’t live on that and I am sure you can’t either. Reaching one million dollars is a mega-milestone, but you should want more. Like twice or three times that amount for retirement. Make it happen!

I previously wrote about one of my favorite authors and books, The Millionaire Next Door by Dr. Thomas J. Stanley, and one of his key points within the book; Prodigious Accumulator of Wealth.

PAWs or Prodigious Accumulator of Wealth are those who are very penny-wise, live well below their means, save a large percentage of their income, and are not prone to the latest social trends. As the name Prodigious Accumulator of Wealth suggests, PAWs are phenomenal savers, not spenders, regardless of their age and income.

Wealth Calculator

I recently reread The Millionaire Next Door and the wealth calculator got me thinking where I stand based off my currents savings. For those not familiar with this wealth calculation, it’s very simple. Below is the equation.

Age X Gross Income / 10

Let’s pretend our fictitious friend Millennial Mike makes $50,000 a year and is 28 years old. Based off this wealth calculator, Millennial Mike would only be considered a PAW or Prodigious Accumulator of Wealth if he had $140,000 in savings (retirement, checking, savings, brokerage, etc.).

Age (28) X Gross Income ($50,000) / 10 = $140,000

I know what virtually every Millennial is thinking once they see this – no way could I save that much. Well, you may be right, but there is a reason why this term is only coined for extraordinarysavers. You probably are not at this number yet, but it gives you a goal. It gives you a target. Aim high, Millennial’s!

Am I Wealthy? Am I a Prodigious Accumulator of Wealth?

Unfortunately, no. I am not an exceptional accumulator of wealth at the moment. I did my wealth calculation and I only have 78% of what I should based off my age. I calculated this for my wife and she is even farther off, as she only has 25% of what she should for her age. I actually consider us to be very diligent savers but we’re obviously way short.

How do you rank in terms of wealth for your age? Did you hit the mark? Or how far off are you?

I want this post to be a lesson for all of us Millennial’s to save more and live on less. That is how you truly grow your wealth. Find your wealth calculation number and circle it. That’s your goal, but it won’t happen overnight and it probably won’t happen in a couple years. It will take several years but stick with it. I know I will.

Previously I wrote about the Roth IRA turning 20 this year (in 2018). The Roth IRA first became available in January 1998 when it was signed into legislation (thanks to Senator William Roth of Delaware). 20 years later it is still the single greatest retirement account for all individuals…especially us Millennial’s who are in low tax brackets. Stock market returns are really, really hard to predict. You know what may be even harder to predict? Your tax bracket at retirement!

In my past blog post on the Roth IRA turning 20, I also stated that if you had maxed out your Roth IRA since day one back in January 1998, you could expect to have a total balance of over $194,000 today in 2018! Maxing out your Roth IRA since 1998 would have costed you $81,500, but you would more than double your investment by having a balance of nearly $200,000 today.

We Millennial’s obviously couldn’t take advantage of the Roth IRA since 1998, considering our age and when we actually began working and truly were eligible to contribute to a Roth IRA of our own. I want to use this post to looking ahead and encouraging all Millennial’s to not only opening a Roth IRA, but maxing out a Roth IRA.

Did you know that if you open a Roth IRA today, in 2018, and max it out every year ($5,500/annually), you could end up with close to one million dollars? Based off a 10% annualized return over 30 years, an initial investment of $1,000 with an annualized contribution of $5,500 could net you a total of $922,000! That means you paid $458/month for 30 years ($165,000 net investment) and ended up with nearly $1,000,000.

What if you made the same investment but only for 35 years? Say from age 25-60. You would end up with over $1,500,000 by the time you were 60 and looking to retire (early).

If your timeline were even longer and you could invest that amount for 40 years (age 25-65), you could end up with nearly $2,500,000 by the time you were 65.

The Roth IRA (Individual Retirement Arrangement) first became available in January 1998. 20 years later it is still the single greatest retirement account for all individuals. The Roth IRA was established by the Taxpayer Relief Act of 1997 (Public Law 105-34) and named for its chief legislative sponsor, Senator William Roth of Delaware, hence the name “Roth” IRA.

For the first four years (1998-2001) the max Roth IRA contribution was only $2,000. Over the next three years (2002-2004) the max was $3,000. The Roth IRA saw another $1,000 increase in its max contribution over the next three years (2005-2007) to $4,000. It then again increased to $5,000 over the next five years (2008-2012). Today the maximum Roth IRA contribution still stands at only $5,500, where it has stood since 2013.

If you invested in a Roth IRA since day one through this past year (January 2008 to December 2017) you would have invested $81,500 of your own money. But how much would you investment be worth today? Based off a 10% annualized return your Roth IRA would have approximately $194,003. More than double your initial investment based off returns.

How Much Does it Cost to Have a Baby?

My wife and I are first-time parents and we are now officially one-year into the “parenting” process. I made it a goal to track all of our childcare expenses so I could truly report on the cost of raising a child. I invite all of my personal finance readers to follow along our journey as I diligently track all expenses involved in truly raising a child these days in middle class America.

The consensus from my research was it costs $14,000/annually to raise a child in 2017. Well, my wife and I are one year in and that first year costed us just a hair under $7,300. So we spent about half of the average (annually) to raise a child. The first few years you don’t incur costs for schooling and sports. However, you do pay for daycare at this point up until they begin kindergarten, so it does come to a bit of a wash.

We also spent $4,568 alone on the delivery of our baby, which includes OBGYN visits the months leading up to the delivery. So of the nearly $7,300 we spent on our baby in year one, really 62% of the cost was due to her delivery alone. The remaining $2,700 was really allocated to daycare, her 529 college fund, formula, diapers, and other items like toys and clothes.

I had actually read about some Millennials opening 529 plans for children they didn’t even have (or “expect” to have even in the next 9-months). That scenario was a bit too aggressive for me, as we had been trying for some time to have a baby with no such luck. I was convinced opening a 529 college savings plan for a pre-conceived child wasn’t right. With all that said, I am glad I opened a state-sponsored 529 plan for my daughter when she was only 6-days old.

529 Savings with a Match?

Now, let’s get back to the title of my article on a 529 college savings plan with a match. Does such a 529 plan exist you ask? Well, no, not exactly. The premise of this blog post is to encourage Millennial parents to not only contribute whatever they can on a regular (monthly via dollar cost average) basis to their child’s 529 savings plan, but to also match any gifted contributions you receive from family members and friends.

For example, this week my parents gave my baby girl a Valentine’s Day outfit and a $20 bill. My parents have done this, albeit in very small amounts thus far, but they have gifted us some money for our daughter’s college fund.

This was at our request…otherwise I think they would just give us more and more gifts and presents. But I would strongly prefer money for her college fund. I struggled with student debt because my parents didn’t save. I don’t want to struggle to put my daughter through college, nor did I want her to take on the burden of huge student loans like so many of us Millennials are these days.

The day after my parents gave my daughter $20 for Valentine’s Day I immediately wired that amount from my checking account to her 529 savings plan. I then matched 100% of the contribution, so I actually wired $40 to my daughter’s 529 plan. We received a couple contributions from family members at her birth but I didn’t match those. To be honest, I just thought of the idea in the last couple of months. Now I am ready to act on the idea of a 529 savings plan with a match (by me!).

So moving forward I am going to try and match 100% of any family members’ 529 contributions that my daughter receives. Granted these are small amounts, but if a family member gives my daughter $100 for her college savings plan, I am going to show my appreciation to both by matching 100% of that. My daughter should begin college in 2035, and from my calculations it is going to be very expensive.

Last week, February 5-9, 2018, the stock market was as volatile as its ever been. The stock market also had its worst one week in two years. The market indices were down 10% from all-time highs just a couple weeks ago…entering the market into an official “correction” (a correction is defined as 10% dip). The NASDAQ suffered its worst weekly percentage drop since February of 2016, while the Dow and S&P 500 each had the third biggest weekly point drop on record. The Dow alone had 3 of its top 10 biggest daily point drops on record this past week (closing on February 9, 2018).

Here is a recap of the markets and select industries, and just how down each was when the markets closed on Friday, February 9, 2018. You’ll see that all the major corporations were down significantly last week.

U.S. Market Indices

S&P 500: -5.2%

Dow: -5.2% (down 9.1% from all-time high)

NASDAQ: -5.1% (down 8.4% from all-time high)

How did financial stocks do last week?

Goldman Sachs: -4.1%

Morgan Stanley: -6%

UBS: -7.6%

Citi: -4.3%

JP Morgan Chase: -3.7%

Bank of America: -5.1%

Wells Fargo: -12.4%

US Bank: -5.5%

How did energy stocks do last week?

Exxon Mobil: -9.6%

Chevron: -3.9%

Shell: -6.3%

BP: -4.7%

HESS: -11.5%

Conoco Phillips: -9.3%

How did home builder stocks do last week?

Toll Brothers: -4.1%

Lennar: -2.2%

Pulte Homes: -6.5%

How did construction stocks do last week?

Caterpillar: -5.3%

John Deere: -6.1%

How did tech stocks do last week?

Apple: -2.2%

Microsoft: – 3.9%

Intel: -4.1%

Cisco: -3.4%

Adobe: -3.9%

Facebook: -7.4%

Google: -6.5%

Yahoo: -5.3%

Amazon: -6.3%

ebay: -6.0%

How did department store and retail stocks do last week?

Macys: -3%

JCPenny: -3.1%

Kohl’s: -3.2%

Walmart: -4.9%

Target: -0.7%

Costco: -5.4%

How did airline stocks do last week?

American Airlines: -7%

United: -4.1%

Southwest: -5.5%

How did health care stocks do last week?

United Health Group: -4.7%

Cigna: -5.2%

Anthem: -3.1%

How did my retirement accounts do last week?

Last week my retirement accounts (company 401k and two Roth IRA’s) were down 4.3%, whereas the S&P 500 was down 5.2%. Overall this year, which is only 41-days into 2018, my retirement portfolio is down 2.77%.

The Vanguard Target Retirement 2040 Fund (VFORX) is down 1.98% so far in 2018. This is my personal benchmark because I could invest all my retirement portfolio into one account or choose a number of index funds to diversify. I am doing the latter and this year I am slightly trailing the 2040 Target Date Fund.

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”.

With that said, if I can beat the market I will absolutely take it (obviously)! In 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.

And last year in 2017, my retirement portfolio returned 17.04% compared to 19.42% from the S&P 500. In 2017 the Vanguard 2040 (VFORX) fund was up 20.71%. So the Vanguard 2040 target date retirement fund not only beat me by more than 3%, but it also beat the market by more than 1%. That is definitely something worth watching for me. With that said, I am a long-term, buy-and-hold investor with the big picture in mind. So mini annual analyses like this won’t paralyze me and force me into a rash decision. In the last 10 years my retirement account has returned a 11.7% rate of return, whereas the 2040 target date fund has only returned 7.23% over the last 10 years.

Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.

2018 Stock Market Outlook

If you’re like me, or any investor for that matter, you are wondering just what the 2018 stock market outlook will be. As they say in the business, past performance is no guarantee of future gains. However, last year the total U.S. stock market was up over 21%. In 2016 the total U.S. stock market was up nearly 13%. So right now we are on a 9-year bull market ride, the longest in history.

But, just how long will that bullish ride continue? Will we make a solid decade-long bull market ride with positive returns in 2018? I am not a prognosticator, but I am certainly bullish on the idea of the 2018 stock market producing double-digit gains for a third year in a row. I do think it will be on the lower side, like 10-12% returns, but that is still tremendous.

With President Trump’s new corporate tax cuts and all the repatriating of corporate money, I think the U.S. stock market is in for another good year, if not two or three. If you don’t believe me, below are some helpful links of others within the financial industry and their 2018 stock market forecast.

2018 Stock Market Forecasts

Yet many bulls point out that there is still much to like about the U.S. right now. There is the potential for a boost to profits from lower corporate taxes. The job market and overall economy continues to hum along. Consumer spending remains resilient too.CNN Money: Can the stock market bull keep raging in 2018?

Bitcoin will “crash”: With the crazy volatility in the cryptocurrency markets over the past few weeks, it’s a pretty safe bet that a serious correction is in the works. A drop of 50% from recent highs around $19,500 would take the digital currency, +5.80% down to just under $10,000 — a figure not that far away after recent declines.MarketWatch: 18 predictions for 2018 on the stock market, FAANGs and bitcoin

Year-end predictions are more art than science. And predicting the future isn’t necessarily Wall Street’s strong suit. At the start of 2017, for example, not a single strategist at 18 top banks saw the Standard & Poor’s 500 stock index rising as much as it has. The average gain predicted was 5.5% and the biggest bull saw stocks rising 12%, according to Bloomberg. If the average prediction had been right, a 401(k) investor with $10,000 invested in the S&P 500 at the start of 2017 would have gained $550. That’s well shy of the market’s actual return of nearly $2,000.USA Today Money: Where the stock market is headed in 2018

Strategists are forecasting the S&P 500 will end 2018 about 4% higher than its current level, according to the median forecast of strategists in a survey conducted by CNBC. Buying into the market when stock prices already are high can be intimidating. But that shouldn’t deter you from participating in what’s proven to be a fantastic long-term investment. The market will go up and down in the course of your investing timeline, but one way to minimize the risk of a big shock to your portfolio is to ensure you’ve spread your money across a variety of assets.NerdWallet: 2018 Stock Market Outlook: More Fear of Missing Out?

For 2018 and beyond, our investment outlook is one of higher risks and lower returns. Elevated valuations, low volatility, and secularly low bond yields are unlikely to be allies for robust financial market returns over the next five years. Downside risks are more elevated in the equity market than in the bond market, even with higher-than-expected inflation.Vanguard: Economic and market outlook for 2018: Rising risks to the status quo

Should investors look for more of the same in 2018? Or is the party nearly over? Not quite yet, according to the Schwab Center for Financial Research’s 2018 Schwab Market Outlook. Global economic growth will likely continue to lift earnings in 2018—but we do appear to be entering the later stages of the market cycle, SCFR says. And with valuations high in both the stock and bond markets, investors should exercise some caution. “We anticipate solid growth in 2018 and don’t see a recession on the horizon,” SCFR experts say. “However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.”Charles Schwab: 2018 Market Outlook: It’s Getting Late